US equities have not always retreated when bond yields rise, and the current cycle is testing that pattern again. Geopolitics and the Federal Reserve\u2019s tightening bias are pushing Treasury yields higher, a backdrop that tends to pressure corporate fundamentals and raise the appeal of government paper. Offsetting that, demand linked to artificial intelligence and renewed appetite for technology shares has supported the S&P 500, with the Nasdaq 100 rebounding in September to near its highs while the Russell 2000 and the Dow Jones have remained under pressure.<\/p>\n\n
Past episodes show equities can hold up even during abrupt yield moves. In 1994, the Fed tightened policy and the S&P 500 still advanced; in 1999, yields climbed ahead of the tightening cycle as enthusiasm for internet stocks buoyed the index, before the dot-com bust drove a fall of about 49% from the March 2000 peak to the end-2002 low. Today, 10-year Treasury yields are at their highest since 2007, and 30-year yields are at their highest since 2004, yet the S&P 500 has stayed resilient even with the yield curve close to inversion, a signal often associated with recession.<\/p>\n\n
As we navigate the final days of September 2026, we advise derivative traders to lean into bullish strategies on tech-heavy indices. Despite persistent worries about high interest rates and the 10-year Treasury yield hovering near 4.2%, the robust momentum in artificial intelligence continues to shield the broader market. We recommend using bull call spreads on the S&P 500 to capture upside potential while limiting our upfront risk.<\/p>\n\n
Our bullish outlook is backed by recent data showing the S&P 500 holding strong near the 5,600 level, supported by resilient corporate earnings. While interest-rate-sensitive sectors in the Russell 2000 are lagging, the tech sector’s cash reserves keep it highly insulated. We believe this divergence presents a prime opportunity to buy Nasdaq 100 call options while hedging with put options on weaker small-cap indices.<\/p>\n\n
History teaches us that rising yields do not have to trigger a stock market crash if economic growth is solid. For instance, in 1994 and 1995, the S&P 500 continued to march higher even as the Federal Reserve raised rates aggressively. We see a similar setup today, where AI-driven productivity gains are offsetting the economic drag of higher borrowing costs.<\/p>\n\n
To protect our portfolios against a sudden shift in sentiment, we should monitor premium pricing in the volatility index (VIX), which currently hovers around a calm 14. If signs of cooling AI demand emerge, we suggest buying cheap out-of-the-money put options on high-flying chipmaker stocks. Otherwise, writing short-term put options on major indices during minor pullbacks remains our preferred tactical play.<\/p>\n\n\n\n